The Fed’s Capital Mistake

Regulators give in to the bank lobby’s wish for more leverage.

Happy days are here again for American finance. Tax reform and rising interest rates are throwing off huge profits, and maybe a little amnesia is setting in among banks and regulators. Lo, the Federal Reserve thinks now is a splendid time to ease capital requirements.

Last week the Fed proposed recalibrating its leverage requirements for the eight globally significant banks (GSIBs). The regulations were enacted after the 2008 financial crisis to ensure that banks maintain adequate capital. The Fed can restrict banks that...